Kerala banks failed to meet credit needs: RBI report

A Reserve Bank of India (RBI) report has highlighted the scope for expansion of credit by banks and financial institutions in Kerala.

The report titled 'Bank credit in Kerala: An analysis of trends and issues' was published in November 2003.

Authored by P D Jeromi, who is working as assistant adviser in RBI's department of economic analysis and policy in Kochi, the paper admits that private financiers (known as 'blade companies') are thriving in Kerala because the formal banking system has not been able to meet the credit requirements of sections such as retail trade, personal consumption, medical expenditure and social functions.

Estimating the number of private financiers in the state to be around 12,000 and their outstanding credit at around Rs 6,000 crore, the report says the formal banking system should strive to garner the business done by these financiers.

According to the report, commercial banks in Kerala seem to lay more emphasis on mobilisation of deposits than credit expansion. The paper says, "Since 1991, there has been a drastic decline in the CDR (credit deposit ratio) in the state.

The CIDR (credit-investment deposit ratio) was also lower in Kerala and it was even lower than the CDR at the national level."

Observing that Kerala was having the lowest CDR and CIDR among southern states, the report said that the performance of some of the nationalised banks was poor and most of the private sector banks are also lagging behind in both credit disbursement and investment.

Revealing that Kerala's share in total disbursements by financial institutions was also abysmally low at 1.5 per cent and their per capita credit disbursement was less than half of the all-India level, the paper felt that banks and financial institutions should evolve suitable policies and tailor-made products to expand credit to the rising services sector and aimed at weaning away borrowers depending on private financiers.

According to the report, there is enough scope for expansion of credit by banks and financial institutions in the state.

The paper said the economic liberalisation and reform measures initiated by Kerala in recent times will provide more opportunities for banks to expand credit, especially in sectors such as information technology, software development, IT-enabled services, bio-technology, healthcare services, higher education and tourism.